REGULATION

EPA listens as states, utilities brainstorm interstate trading for carbon rule

A platoon of U.S. EPA officials and three dozen stakeholders with skin in the game got together last week to figure out how an interstate trading market might aid compliance with the proposed Clean Power Plan to slash greenhouse gas emissions.

"The majority of the conversation right now is around different tools that are being developed to look at how you might prepare an implementation plan," said Michelle Walker Owenby, assistant commissioner of policy for Tennessee's Department of Environment and Conservation. "It's more a discussion of different available options and tools that are being developed and being discussed as concepts rather than 'here's a clear path.'"

Stakeholders have moved from airing grievances about the proposal to broadly discussing ways to reduce emissions under the rule's framework, Owenby said.

The Tuesday meeting in Washington, D.C., organized by the Georgetown Climate Center, examined the merits of both a rate-based state compliance plan and a mass-based plan, according to the meeting's agenda.

States can comply with the draft rule using a rate- or mass-based standard. A rate-based standard would require a state to lower the amount of carbon its power sector produces with each megawatt hour of power it generates. A mass-based standard would require states to cap pounds of carbon emitted annually from all power sources.

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For either approach, participants discussed the option of "interstate trading of compliance credits" such as renewable energy or energy efficiency credits. They shared modeling efforts and discussed the impacts of regional cooperation on compliance costs.

The meeting also included a discussion of "what common elements individual state programs would need to include in order to allow participation in a centralized system, what centralized infrastructure is required, and what other guidance or support would be required," according to the agenda. One common element states might need is a standard method for measuring energy efficiency, for example.

Attendees said the talks stayed at that "high level."

States and other stakeholders are working out practicalities while they await EPA's final rule, said Ken Colburn, a senior associate for the Regulatory Assistance Project.

"States aren't in a position to dig in and start putting bricks in the wall because they don't yet know what EPA's blueprints are [in terms of approvability]," Colburn said. "While they would like to have those blueprints, they aren't just throwing up their hands. ... They are trying to identify options and work out issues that could arise."

Supporters and skeptics weigh in

The event was the fifth such meeting among EPA, states, power companies and nongovernmental organizations since April 2014.

The EPA attendees comprised acting Deputy Administrator A. Stanley Melberg, acting Assistant Administrator Janet McCabe, Senior Counsel Joe Goffman and 17 other staff members. McCabe had alluded to the meeting when speaking at the Federal Energy Regulatory Commission's Wednesday technical conference on the Clean Power Plan. Because EPA is still developing the rule, agency officials can disclose very little about what could change. They did more listening than talking at the meeting, several attendees said.

Other participants included environmental officials from a dozen states, representatives of power companies and an assortment of officials from NGOs.

"Whenever I go to discussions like these, I am reminded how seriously state regulators and many utilities and others are taking EPA's proposal and how much effort and resources they are expending to attempt to make it work," said Bill Becker, executive director of the National Association of Clean Air Agencies.

"It is so reassuring to hear the amount of effort and analysis that is being carried on throughout the country -- not just by states -- but by the regulated community. That gives me confidence that there may not be any turning back on this proposal," he said.

Both supportive and skeptical states sent representatives to the meeting, including California, Colorado, Maryland, Minnesota, Missouri, Montana, New York, Oregon, Pennsylvania, Tennessee, Virginia and Washington.

The events are supposed to be a safe space for attendees to forgo politics and brainstorm under "Chatham House Rules," where they can share what they've heard but without attributing it to any particular state or stakeholder.

"There are a lot of ways states can choose to comply and the value of something like Georgetown is you get out on the table potential compliance pathways and what the issues are with each of them and allow people that have been thinking about these issues to discuss them," said Doug Scott, vice president of strategic initiatives for the Great Plains Institute and a former member of Illinois Commerce Commission, as well as Illinois EPA chief.

Multi-state plans get attention

There was little interest among most at the meeting in a rate-based approach because of the complexity involved, said one attendee. Noting that a lot of modeling has been done, stakeholders "are all kind of reaching the same conclusion: regional, mass-based programs are far cheaper to implement, and the states know this."

The attendee said if some progressive utilities want a mass-based approach, others are likely thinking the same in private.

"Once industry knows that they have to comply, then they quickly get to their low-cost option and everybody's seeing what the low cost options are. It's not going to be easy, but it can all be worked out, especially if it's in a multi-state plan," he said.

Owenby said the concept of a mass-based plan is easier to understand, and it might seem that states would drift toward that approach, but she doesn't think many have decided.

Sam Ricketts, director of the D.C. office of Washington Gov. Jay Inslee (D), said states are still looking at how the rule would affect them individually.

"These questions around regional coordination seem largely to be going on mostly in the realm of think tanks," he said. Some states are interested, but they are awaiting the final rule so they can understand whether they should go it alone or work together, he said.

Who gets credit for renewables?

One major question EPA will answer with its final rule is how credit for renewable energy may be divided among producing and consuming states. The draft rule builds existing and potential renewable power into each state's goal, and it's unclear whether importing states that are incentivizing that power might get to count it toward compliance.

"If Iowa's wind -- all its potential for wind and all its current wind -- is in Iowa's goals, how is anyone else going to take advantage of that?" Owenby asked. "Will that be credited to other states that utilize that resource or is it going to be something Iowa wants to keep in its state goals?"

Owenby said the meetings didn't dive deeply into renewable energy crediting because there are too many unknowns until EPA finalizes the rule.

Scott and Becker welcomed the extent of EPA's participation with stakeholders both before the proposed rule was released in June and in the aftermath as more than 3 million comments flooded the agency.

"Regardless of what people think about the proposed rule or the Clean Power Plan, I think that most people recognize that the outreach that EPA has done has been really substantial," Scott said.

Becker has been dealing with EPA since the 1970s. "I have never seen such an unprecedented level of stakeholder involvement between EPA and the affected entities," he said.

"They have listened well and signaled where additional information is necessary to seriously consider the recommendation. You could almost predict with some certainty that as a result of the stakeholder input triggered by EPA's willingness to listen, there will be very significant changes to the proposal. I think EPA gets it," Becker said.

Twitter: @emilyhholden | Email: eholden@eenews.net

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